Posts Tagged ‘Monetary Expansion’

Our monetary policy direction has been prolonging the slowdown since 2008. The longer we wait, the worse the hit we will take. We are going from one bubble to another and are just postponing the inevitable. Under our current system, which has stripped the working class from their savings, they are exposed to greater risks than ever before.

The faith and credit-standing of issuers of paper money, and not the known and suspected inadequacies of commercial finance, is the last rotten pit-prop supporting the system. We can easily see how a new round of monetary expansion designed to save the global banking system from its nemesis will lead, not to a Lehman-style outcome, but to a collapse of paper currencies.

A revolt against previously-agreed austerity packages by any of these other states would have untold ramifications not only for the future of the Eurozone, but the euro itself. In the wake of this episode, the status of the euro as money is likely to be increasingly questioned, not just in the foreign exchanges, but by its users as well.

Federal Reserve monetary expansion & artificially low interest rates generated wide imbalances between investment & housing borrowing on the one hand & low levels of real savings in the economy on the other. It was inevitable that reality of scarcity would finally catch up with all these mismatches between market supplies & demands.

An un-backed expansion of the money supply causes the prices of goods and services to rise – Inflation. It allows the state to go into debt more easily and at lower interest rates than would be the case without monetary expansion. Inflation reduces the purchasing power while the price of raw materials tends to rise.

Printing presses set in motion an exchange of nothing for something. Note that a monetary pumping sets a platform for various non-productive or bubble activities — instead of wealth being used to fund the expansion of a wealth generating infrastructure, the monetary pumping channels wealth toward wealth squandering activities.

Until official inflation rises, it is more comforting to pretend it won’t be an issue, which describes the Fed’s approach – It is targeting unemployment rates because price inflation is tied to capacity utilization, which in turn is tied to employment.